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Facebook Profit Surges as Ad Sales Grow

Social Network Gains Ground on Mobile Devices; Revenue Jumps 63%

In spite of recent concerns over decline in users, everything went right for Facebook as it reported $2.6 billion in revenue and its stock soared to an all-time high on Wednesday. WSJ's Reed Albergotti reports. (Photo: Getty Images)

Facebook Inc.
FB 0.59%
isn't adding users the way it once was. But its business is accelerating.

The world's largest social network showed Wednesday that it can generate more money out of each user, as it posted a 63% increase in revenue and an eightfold increase in profit for the fourth quarter.

The results far exceeded investor expectations, sending Facebook shares up 12% in after-hours trading to $59.98, near their all-time high. The stock finished 4 p.m. trading at $53.53, down 2.9%, ahead of the earnings report.

In an interview, Chief Operating Officer
Sheryl Sandberg
said Facebook's results reflected data that showed advertisers that Facebook ads work. In a recent test at
Coca-Cola Co.
pitting the beverage giant's Facebook ads against its TV ads, "we were the most efficient," she said.

The results put to rest, at least for a while, concerns about whether teens are abandoning Facebook for what they consider hipper services, or whether Facebook advertising would be as profitable on mobile devices as it is on personal computers.

Facebook said mobile-advertising accounted for 53% of revenue in the fourth quarter, up from 49% in the third quarter and 23% a year earlier. Market researcher eMarketer said Facebook grabbed 18% of the $16.7 billion global mobile-advertising market last year, second only to
Google Inc.'s
53%.

Chief Financial Officer
David Ebersman
said that in the space of a year, Facebook has gone from barely having a mobile-ad product to being "the best mobile product" in digital marketing.

The quarterly figures prompted analysts to talk up Facebook's prospects as many did in the days before its 2012 initial public offering. Several of them said Facebook is just now tiptoeing into using its vast cache of data about its billion-plus users to target ads on other websites, and ultimately in other media, such as television.

"They know more about their users than any company has ever known about a population," said
Forrester Research
analyst
Nate Elliott.

For the quarter ended Dec. 31, Facebook had revenue of $2.6 billion, up from $1.6 billion a year earlier. Its profit increased to $523 million, or 20 cents a share, from $64 million, or 3 cents a share.

Excluding certain costs, Facebook said it would have earned 31 cents a share, up from 17 cents, and topping expectations of 27 cents a share on that basis.

The company said 1.23 billion users logged into the service at least once a month during the quarter, up roughly 3%, or 40 million users, from the previous three months. More than 61% of those people—757 million—used Facebook daily, it said. The ratio of daily users to monthly users was little changed from the third quarter.

Facebook said its average revenue per user increased 24% from the third quarter to $2.14. It rose 33% in Europe and 17% in Asia, suggesting that Facebook is better at reaping revenue from its largest set of users: those outside the U.S. and Canada.

Mr. Ebersman hinted that Facebook's engagement numbers were even better than its publicly disclosed numbers. Metrics that Facebook doesn't disclose, like time spent per user and feedback per user, also increased, Mr. Ebersman said.

In a sign of Facebook executives' confidence, Mr. Ebersman told analysts the company's employee count grew by 33% last year, and would likely grow at a faster rate this year.

A recent study by
Adobe Systems Inc.,
which tracks Facebook's ad performance and use across desktop and mobile devices, confirmed Facebook's dominance, but also offered some cautionary data.

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According to Adobe, advertisers on average paid 29% more each time a user clicked on a Facebook ad in 2013, compared with 2012. Facebook also generated the most "revenue per visit" when Facebook users clicked over to a retail site from the social network. But Facebook lost ground by that measure to Pinterest Inc. and
Yahoo Inc.'s
Tumblr unit, two social sites that feature images.

There might be a "growth slowdown for Facebook coming in 2014, unless they do some things to refresh targeting, tools and visibility," said
Tamara Gaffney,
a senior marketing manager for Adobe Digital Index.

Facebook executives didn't address the network's struggles to attract new teen users, who according to surveys prefer mobile messaging apps like Snapchat and Whatsapp. In October, Facebook said it had seen a slight decline in use by young teens, raising questions about whether the social network would remain popular well into the future.

Mr. Elliott, the Forrester analyst, said the company's silence on teen usage "won't have calmed any nerves."

Most surveys suggest Facebook is still the most popular social network and mobile app among teens, but they differ on whether Facebook's share of the teen market is growing, shrinking or static.

If Facebook's growth is slowing down, people within the company like to point out that its user numbers plateaued once before, at about 100 million users. Some people within the company worried it had reached the ceiling. That turned out not to be true.

Corrections & Amplifications An earlier version of this story misstated Facebook's average revenue per user and growth rates for that figure worldwide and in Europe and Asia.